Part 2 – US Social Security System from an International Perspective How similar or different is the Social Security system to that of other developed countries? How costly? How generous? How great are the financing challenges of aging?

International Labor Organization Definition of Social Security Social Security the protection that a society provides its members, through a series of public measures, against -- Loss of work-related income (or insufficient income), caused by – sickness, – disability, – maternity, – employment injury, – unemployment, – old age, or – death of a family breadwinner; Lack of access to health care, because it is unavailable or unaffordable; and Insufficient support for childrearing.

II. What stands out about US social security? 1.Missing elements: – Health insurance – Sickness benefits – Family benefits

2. Relatively low benefit levels ILO minimum standard: 40% of prior wages after 30 years of contributions Average benefit (as a percentage of average) wage: – US - 37% – Belgium - 45% – France - 63% – Sweden - 49% – Austria - 55% – UK - 35%

3. Relatively high retirement age 67 - Spain 66 - US, Ireland 65 - Austria, Belgium, Finland, Germany, Greece, Italy, Netherlands, Portugal 61 - Malta 62 - Slovakia, France 63 - Cyprus, Estonia, Slovenia Legislated increases: US, Germ, Greece (67), Italy & Ireland(69), Estonia, Slovenia (65).

4. Relatively low cost Social Security (pension) expenditures as a % of GDP – US - 5% – European Union average %

5. Relatively small cost increase on the horizon Expenditures as a % of GDP – US - 5%, rising to 6% in 2060 – European Union %, rising to 14.2% in 2060

6. Low costs of administration Administrative costs as a % of total benefit expenditures, 8 countries – US – Austria – Belgium – Canada – Germany – Italy - 4 – Japan – Netherlands - 2.3

BUT.... It all depends on... – Fertility – Employment – Immigration – Productivity – Inequality

Declining fertility rates Replacement rate = 2.1 children per woman US 2.1, EU l.54, France US 2.0, France 1.9, EU US 1.89, France 2.0

Rising unemployment United States (Jan. figure) % % % % % % % % % % 2012 – 8.3% 2012 – 7.9%

US versus Europe EU 27, 10.7% EU 17, 11.7% US, 8.3% But.... – Germany 5.4% – Netherlands 5.5% – Austria 4.2%

Immigration Countries with higher population growth are often the most successfully economically Illegal migration, a plus for social security – Steve Goss, SSA Chief Actuary: by 2007, the Social Security Trust Fund has received a net benefit of somewhere between $120 billion and $240 billion from unauthorized immigrants.

Productivity Changes in living standards due to Aging and productivity, (Dean Baker, New America Foundation) Aging - 8.5% Productivity - 1% annual growth + 26% Productivity - 1.5% annual growth + 41%

Inequality Raising the social security wage cap to its previous level, covering 90% of wages, would eliminate about one third of long-term social security shortfall.

To sum up, Compared to other developed countries, the financing challenge of theUS Social Security system looks manageable. – Low cost – Efficient administration – Small demographic challenge BUT …. It all depends on the future economy